June Coming In On-Par With Expectations. What's Next?

Previously, we have discussed the budding La Niña base state and what we feel it means in terms of the weather pattern this summer. As of this writing, we continue to see the signature of La Niña in the Pacific Ocean, with colder than normal water growing more expansive in the equatorial regions.

*Image courtesy of StormVistaWXModels

This led us to the following expectation for June, based on the behavior of past cases with a similar global base state evolution.

With just over two-thirds of the month in the books, this projection has worked out quite well.

In terms of impact on the natural gas market, extreme heat has largely avoided areas that are most crucial for natural gas consumption, but demand from weather still ran above normal, as shown in our Gas-Weighted Degree Day (GWDD) data.

The above-normal demand regime has done little to assist natural gas bulls, due to being outweighed by other factors, such as a sharp decline in LNG volumes, something we've also looked at in previous posts. As a result, prompt month natural gas prices remain mired near the bottom of the trading range that has prevailed since January.

Still, it remains early in the game as far as summer is concerned, so what comes next? Current long range modeling is suggesting heightened risk of above normal heat from the Midwest to East during the month of July, as shown by the latest CFS model.

This would fit with the trend deeper into a La Niña base state, using similar methodology used in projecting the June pattern.

Such a pattern would again bring about higher-than-normal demand for natural gas, but the key is to see if indeed the La Niña state continues to grow. Would this finally be enough for natural gas bulls to finally gain even a little control of the market? Possibly, but as we know, weather does not have the same market power in summer as in winter, so we must equally remain in-tune with the fundamentals' scene. Will LNG recover? Will higher oil prices bring more production back online? Will COVID-19 resurgence impact the demand side once again? If you are an active natural gas trader, following all of these data points is crucial.